The improvement came on the back of better top-line performance, partially offset by higher operating expenses. Moreover, loan and deposit balances improved in the quarter. Further, capital ratios were stable, while credit quality was a mixed bag.

Net income in the quarter came in at $49.3 million up 35.1% year over year.

Performance in Detail

Prosperity’s total revenue in the reported quarter came in at $141.5 million, soaring 34.0% from $105.6 million in the prior-year quarter. Moreover, this beat the Zacks Consensus Estimate of $132.0 million by 7.2%.

Net interest income surged 32.1% year over year to $108.1 million. However, net interest margin dipped 22 basis points from the prior-year quarter to 3.42%.

Non-interest income augmented 68.1% year over year to $23.4 million. The increase was primarily due to the acquisition of American State Financial Corporation (“ASB”).

Non-interest expense came in at $55.8million, up 37.8% from $40.5 million in the prior-year quarter. The rise was mainly due to additional non-interest expenses associated with ASB.

The efficiency ratio increased to 42.40% from 42.23% in the prior-year quarter. The rise in efficiency ratio indicates deterioration in profitability.

As of Mar 31, 2013, total loans were $5.3 billion, rising 35.8% from $3.9 billion as of Mar 31, 2012. Total deposits increased 37.1% year over year to $11.7 billion.

Asset Quality

Asset quality was mixed in the quarter. The ratio of allowance for credit losses to total loans dipped to 1.05% from 1.33% in the prior-year quarter.

On the other hand, net charge offs were $0.32 million, significantly up from $0.1 million in the year-ago quarter. Moreover, total nonperforming assets stood at $18.1 million, up 21.9% from the year-ago period. Likewise, provision for credit losses increased significantly to $2.8 million from $0.2 million in the prior-year quarter.

Profitability and Capital Ratios

Prosperity’s capital and profitability ratios exhibited a modestly cautious approach in 2013. As of Mar 31, 2013, tier-1 risk-based capital ratio was 14.77% compared with 15.70% as of Mar 31, 2012. Moreover, total risk-based capital ratio came in at 15.61% as against 16.80% at the end of the year-ago quarter.

The annualized return on average assets was 1.33% as of Mar 31, 2013 compared with 1.39% as of Mar 31, 2012. Similarly, annualized return on common equity came in at 9.23%, up from 9.15% as of Mar 31, 2012.

Acquisitions

In Apr 2013, Prosperity concluded the acquisition of Coppermark Bancshares, Inc. and its wholly-owned subsidiary, Coppermark Bank. Upon acquisition, the company took over total assets worth $1.2 billion, total loans of $847.6 million and total deposits of $1.1 billion.

In Jan 2013, Prosperity closed the acquisition of East Texas Financial Services Inc. and its fully-owned subsidiary First Federal Bank Texas. Following the acquisition, the company took over total assets worth $165.0 million, total loans of $129.3 million and total deposits of $112.3 million.

Fifth Third Bancorp’s (FITB) first-quarter 2013 adjusted earnings per share beat the Zacks Consensus Estimate by a nickel. Improved credit quality aided by lower provision for loans and leases and strong capital position were the positives.